Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Problem 2. Suppose that a firm's production function is q=KL. You are also given that MPL=K and MPK=L. The cost of a unit of labor
Problem 2. Suppose that a firm's production function is q=KL. You are also given that MPL=K and MPK=L. The cost of a unit of labor is $150 and the cost of a unit of capital is $50. 1. Does the production function represent constant, increasing, or decreasing returns to scale? Show calculations to prove your point. 2. A firm wants to produce 2,700 units of output in the long run. What must be true of the marginal products of the two inputs at the cost-minimizing combination of capital and labor? What must be true of the marginal rate of technical substitution between the two inputs? Calculate and show the cost-minimizing combination of capital and labor in a neatly drawn and fully-labeled isocost/isoquant diagram
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started